## Facts

- Junius Simpson Dean and his wife were the only shareholders of Nemours Corporation, a personal holding company; his wife owned 80% and Dean owned 20%, and Dean served as president.
- A residence originally owned by Dean’s wife (before marriage) was used by the couple as their family home, and she spent significant sums maintaining and improving it.
- In 1931, Nemours Corporation became indebted to a bank, which required the residence be transferred to the corporation; the property was deeded to Nemours Corporation.
- After the transfer, Dean and his wife continued to occupy the residence as their home without paying rent.
- During World War II, Dean served in the military, received payments from the corporation to make up the difference between his military pay and his prior salary, and used the home when he was able.
- The Commissioner determined a deficiency by including in Dean’s gross income the fair rental value of the residence owned by the corporation and occupied by Dean and his family.
- The Tax Court sustained the deficiency, and Dean appealed.

## Issues

1. Whether the fair rental value of a residence owned by a corporation must be included in a shareholder-officer’s gross income when he and his family occupy it rent-free.
2. Whether the corporate ownership of the residence and the corporation’s bona fide existence prevent treating the rent-free occupancy as taxable income to the individual under § 22 of the Internal Revenue Code of 1939.

## Decision

- The Third Circuit affirmed the Tax Court.
- The court held that the fair rental value of Dean’s rent-free occupancy of the corporation-owned residence was includible in Dean’s gross income under § 22.
- The court relied on its prior decision in *Chandler v. Commissioner* as controlling.
- The court rejected arguments that the corporation’s bona fide status or its role as a vehicle for the couple’s business activities changed the tax result.

## Legal Principles

- Gross income under § 22 includes the fair value of an economic benefit conferred on an individual by a corporation, including rent-free use of corporate property.
- When a taxpayer satisfies personal living needs (including a family housing obligation) through rent-free use of corporate property, the measurable value of that use may be taxable to the taxpayer.
- A bona fide corporation is respected as the property owner, but respecting the corporate form does not prevent taxing a shareholder-officer on personal benefits received from the corporation.
- The absence of a tax-avoidance motive in the corporate arrangement does not bar inclusion of the value of rent-free occupancy in the taxpayer’s income when the taxpayer receives a personal economic gain.

## Conclusion

The court held that a shareholder-president’s rent-free use of a bona fide corporation’s residence constituted taxable income to him measured by the property’s fair rental value, and it affirmed the Tax Court’s deficiency determination.


Dean v. Commissioner, 187 F.2d 1019 (3d Cir. 1951)